I'm 35 and I want to start investing for my retirement. My question is, why would you care about volatility if your investment horizon is 30+ years? In order to get a more clear picture of volatility risk, I gathered some data in Python and computed portfolios with varying percentages of risk-free bonds, with a buy and hold of 100k USD initial:

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Portfolios of VGT and bonds

Looking at the graphs, the only reason I could think of is that when you need your money in times of bearish markets, you can lose 30-40% of your capital. But if you can miss the money, and won't need to withdraw it early, why would one care about volatility?

Edit Someone requested to see what would happen if you invested on the peak just before the 2008 crash.

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As you can see the timing would have meant five years of a negative balance, before you broke even again.

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    Proposing another angle to the question, without having done the analysis myself: what happens to the above chart if you are dollar cost averaging, i.e. investing a sum every so often into the markets rather than buying a fixed amount on day 1 and holding? The former is probably a more realistic assumption.
    – Doggie52
    Nov 8, 2021 at 17:19
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    Just to give you some perspective about comparing the past with the future and what volatility really means, do the same with the Nikkei225 over different 30 year periods. Not saying investing is bad, but your analysis is based on an "always up in the long run" theory. The question is, how long is long in the future? And how long can you hold if, for example, you get hit by a bus tomorrow and can't work anymore? Volatility = risk. Risk = potentially more gain. More or less at least.
    – DonQuiKong
    Nov 8, 2021 at 17:26
  • It would be interesting to repeat your analysis with a few different start dates. What happens if you invest at the pre-2008 peak, or in the 2009 trough? I think volatile stocks are more susceptible to lucky or unlucky timing. Both when buying now and selling in the distant future. If you dollar cost average like @Doggie52 suggests, my understanding is that volatility should wash out.
    – craq
    Nov 9, 2021 at 1:59
  • FYI it was probably unnecessary to use Python to interpolate between two curves. Unless there's some periodic rebalancing or something, you're just showing which curve is higher.
    – user253751
    Nov 9, 2021 at 19:00
  • @user253751 It was part of an analysis that I'm doing. I also have a part where I keep investing and rebalancing. Do you think those graphs would look different that I simple buy and hold with an initial investment?
    – Mark
    Nov 9, 2021 at 19:54

3 Answers 3


If you really do not need to withdraw the money, it is just for psychological reasons. Excessive volatility makes many people uneasy and probably rightfully so given the amount of money involved after a few years of saving.

However, there is a caveat to this. At some point you will need to withdraw money and high volatility will increase the risk that you cannot withdraw money at a good price. This is why it is recommended to reduce the allocation to risky assets as one approaches retirement

  • Thank you for your answer! So as long as you have a savings amount that would satisfy any contingency/emergency that arises, you're good? Is there some kind of rule on how much savings you should have, like half, one, or two times your yearly salary?
    – Mark
    Nov 8, 2021 at 15:19
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    There is no general answer to this. It strongly depends on your liabilities (e.g. mortgage), your general cost of living, unemployment benefits of your country and how easy it is to find a new job in your field. Keep in mind that there can always be nasty surprises. For example, who would have thought that many pilots will be out of work for such a long time?
    – Manziel
    Nov 8, 2021 at 15:57
  • Haha good point about the pilots. I was doubting starting pilot school when I was younger, but decided not to go for it. You would have a 130k debt after finishing, but is was "going to be worth it". A couple of years later price fighter airlines started arising, pilots got the bad end of the deal..
    – Mark
    Nov 8, 2021 at 16:34
  • @Mark You should be saving roughly at least 30% of your monthly income after income taxes but that 30% includes non-rental house payments and social security contributions. Ideally, three to six months of income of your savings should be in low risk assets such as money market funds or short-term bank deposits for emergencies, lay-offs, etc.
    – Alper
    Nov 8, 2021 at 18:46
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    Also, securities don't just acquire high volatility (vs the market average) for no reason - they're volatile because there is a significant spread in investor confidence in the instrument. If you're holding for the long term, high volatility can indicate a security that may not have long-term prospects. It may be a safe hold for the next year or two, but it may be a dead sinker on a 10-20 year timescale. When you're investing for the long term you're looking for solid fundamentals, and those rarely come with high volatility.
    – J...
    Nov 8, 2021 at 21:09

At age 35, a 100% stock allocation makes intuitive sense, because as you mentioned, you have the time to ride out volatility.

At age 20, a 200% (levered) allocation could make sense: Lifecycle Investing

To simulate retirement scenarios, finance professors use Monte Carlo analysis. A piece of commercial software based on academic research is MaxiFi.

To encourage individual investors to ignore volatility, Bogleheads (advocates of low-cost investing) adopt a Lazy Portfolio.

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    There is still a big gap between '100% stock allocation' and 'ignore volatility'. Investing in bitcoin or something similar was over the last 10 or 20 years more volatile and more profitable than any stock allocation. If you completely ignore volatility that would suffice to make 100% bitcoin an ideal investment for the next 30 years. I don't think that would be a wise idea.
    – quarague
    Nov 9, 2021 at 11:01
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    @quarague Apples and Oranges. There's a difference between investing and speculation. Investing (stocks) has an expected rate of return (average growth), and volatility is the noise on top of that average growth. Bitcoin is a speculation, and by definition, does not have any expected rate of return. If you hold SPY (per OP) for 30 years, you would expect to have some X% more at the end of that period, regardless of the path it took to get there. In 30 years, how much will you have in bitcoin? What long term, historical precedence do you have to stand on?
    – dberm22
    Nov 9, 2021 at 15:00
  • @dberm22 isn't the high expected rate of return on stocks just based on historical performance i.e. volatility (if it turns out we are in a massive random up-cycle)?
    – user253751
    Nov 9, 2021 at 17:26
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    @user253751 The rate of return of stocks has many drivers that should withstand the test of time. While you shouldn't hang your hat on historical performance dictating the future, certain factors that will likely not changes are: efficiency increasing over time, inflation increasing the price of goods that the companies sell, more people equals larger demand, etc. Maybe those factors slow moving forward, but they are still expected to increase the value of the overall stock market over long periods of time.
    – dberm22
    Nov 9, 2021 at 18:45
  • @dberm22 however, those factors don't seem to have impacted the Nikkei and to a lesser extent the EURO STOXX
    – user253751
    Nov 9, 2021 at 18:56

People care about risk, and volatility is part of that. Just because in the past volatility could be "ignored" or "has averaged out" over a timespan of 30 years (say), this does not mean that it is guaranteed to remain true in the future. For example, there could be a long series of crahes caused by some unfortunate chain of global crises, or in 2045 betting on volatility suddenly becomes such a thing as betting on GameStop, cryptocurrency, you name it...

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